Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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January 24, 2024

FORT, VANL, LORD | News – Further delays and costs for new Hinkley nuclear plant

Company research

Forterra (FORT, 158p, £338m mkt cap) – FORT is a client of PERL

UK’s second largest brick producer and leading building materials producer. FY (Dec) trading update. Link to Progressive Equity Research note, Profit guidance raised despite sharp sales fall:

“Forterra’s FY23E trading update for the 12 months to 31 December guides to adjusted EBITDA ‘slightly ahead’ of its expectations’ despite brick volumes falling by over a third during the year. We have raised our adjusted PBT and EPS estimates for FY23E and introduced a forecast for FY24E taking our cue from the cautious tone in the outlook statement, which cites uncertainties ahead of a general election. However, we suggest Forterra’s large housebuilding customers could out-perform this view.”


Company news

Van Elle Holdings (VANL, 39p, £41m)

Specialist ground engineering contractor. HY (Oct) results. Rev -16%, £68.2m; op margin, 3.9% (HY 22, 4.3%); PBT -24%, £2.5m; EPS -38%, 1.6p; interim div unch, 0.4p, net cash, £8.9m (£3.5m).

Trading: “As expected, revenue was 16% below the prior year, with the comparative period benefitting from stronger housing, construction and infrastructure markets. Establishment and commencement of trading of the Canadian rail subsidiary for which costs have been absorbed in the period, including the impact of some initial delays to expected work. The growing innovation investment, aligned to its growth markets, is reflected in a stronger research and development claim reported in other operating income”.

Outlook: “Good progress is being made on the group’s strategies in the energy and water sectors. Several customer frameworks have been agreed in the period and initial schemes are expected to commence in late FY 24. Volumes in the rail sector will dip in the transition to Control Period 7 (CP7) but are expected to be offset by the group’s framework position on the TransPennine Route Upgrade. The Board expects opportunities arising from CP7 to be significantly stronger than CP6. In highways, the work on the retrofit safety measures as a framework partner on the Smart Motorway Programme Alliance are scheduled to commence in H2. The new build housing and residential sector is expected to remain challenging in the short term but there are early signs of market recovery, and the Board anticipates a return to higher volumes in FY 25. The commercial and industrial markets show signs of increased confidence, underpinning expected an increased utilisation in FY 25 in the General Piling division. The integration of Rock & Alluvium [acquired] on 30 November, is progressing well and is expected to be accretive to underlying earnings in FY 25; the trading agreement with Galliford Try is expected to deliver £10 – 15m of incremental revenues from FY2025. The Board remains confident in achieving market expectations [u-lying PBT, £5.0m] for the full year”.


Lords Group Trading (LORD, 43p, £70m)

Building materials distributor. FY (Dec) results.

Guidance: “The group expects to report FY 23 adjusted EBITDA of approximately £26.6m (£30.0m), in line with current market expectations, and adjusted profit before tax of approximately £11.0m (£17.4m)”. Net debt, £28.5m (HY, £38m), with reduction “ahead of market expectations”.

Trading: “Trading has again demonstrated Lords’ resilience and capability to deliver its growth strategy amidst subdued trading conditions. Steady operational progress made across both Merchanting and Plumbing & Heating [P&H] divisions. Furthermore, seven additional sites across the UK have been added through acquisitive and organic growth, generating an expected £25m of annualised revenues at maturity”. Group rev +2.8%, £463m (-1.2% LFL); Merchanting -2.4%. £215m (-6.3%); P&H +7.8%, £248m (+3.7%).

Outlook: “The markets in which we operate in are expected to remain subdued into FY 24 and, whilst there are signs of improvement in customer demand, these signals remain intermittent and price deflation persists.  This has led the group to continue to take a prudent approach to FY 24 in order to give the market dynamics appropriate time to recalibrate as economic volatility reduces. The Group continues to maintain a prudent and considered approach to inorganic growth and, whilst a pipeline of acquisition opportunities remains live, in the current environment the group is committed to balance sheet discipline which will remain in FY 24”.


In other news …

Nuclear power. Hinkley Point C is now expected to cost an extra £10bn to build and be delivered around three years later than programmed, Developer EDF revealed the latest in a series of increases in the budget and timeline after completing design for the fitout. The cost of completing the Somerset plant is now put at between £31bn and £34bn. But if completion of the first reactor unit is delayed to 2031 in its worst-case scenario, costs would rise to £35bn at 2015 prices. The second unit would be online about a year after the first, according to EDF. In 2022, after assessing the impact of the pandemic, EDF said the targeted start of electricity generation was June 2027, while final construction costs were estimated at between £25bn and £26bn. At today’s prices, the actual cost would be £46bn. According to EDF, costs have risen partly due to new British regulations, leading to 7,000 design changes, 35% more steel and 25% more concrete, as well as inflation and labour and materials shortages. Looking forward, the power group said that big lessons had been learned on reactor one, with the second unit now being built 20-30% faster. The French utility group rather than the taxpayer will foot the extra spend, in return for an agreed electricity sale price that was substantially higher than the average rate. This differs from the agreement for Sizewell C in Suffolk, in which any escalation in construction costs will be added to customers’ bills gradually over the course of the build programme.

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